Article 25
Assessment of equity risk factors
1. When assessing the institution’s compliance with the requirement set out in Article 325bh(1), point (e), of Regulation (EU) No 575/2013 in relation to the modelling of equity risk, the competent authority shall:
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(a) |
require the institution to provide a list of all equity names and equity indices towards which the institution’s portfolio is sensitive, and the risk factors used to model the associated risk; |
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(b) |
require the institution to provide a sensitivity analysis of its portfolio towards each of the equity names and equity indices referred to in point (a); |
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(c) |
verify that, where the risk in an equity name is modelled as a sum of a systematic risk factor as referred to in Article 3(3) of Delegated Regulation (EU) 2022/2060 and idiosyncratic risk factor, the volatility generated by shocking those factors reflects the volatility observed for that equity name; |
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(d) |
verify that the basis risk between two different equity names is captured by either modelling the two equity names directly or by means of a basis risk factor; |
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(e) |
assess whether the risk in changes in equity curves is duly captured in accordance with Article 29 of this Regulation; |
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(f) |
assess whether vega risk related to equity risk is duly captured in accordance with Article 30 of this Regulation. |
For the purposes of point (c), the competent authority may, where appropriate, compare the volatility of the shocks applied to the issuer equity name, as resulting from the systematic and idiosyncratic risk factors, with the volatility observed for that equity name.
2. By way of derogation from paragraph 1, point (a), the competent authority may require the institution to provide the information referred to in that point for the most relevant equity names and indices only, and may perform the assessment set out in that paragraph on those data.